Our Not-So-Harmonized Sales Tax

We’ve heard the infamous quote spoken by the character Howard Beale in the 1976 movie, Network in which he impassionedly stated repeatedly “I’m mad as hell, and I’m not going to take this anymore!” And, it would appear that Provincial MP’s who oppose the new Harmonized Sales Tax (HST) is exactly that, as they face suspension and surely other penalties for their actions in the Legislature.

To recap, HST was initially introduced as a means to assist businesses to acquire capital equipment at a reduced cost (as HST would eliminate ‘hidden’ taxes claimed to hinder this process), and thereby making Ontario businesses more competitive in the Global economy. Essentially the theory would be that because Ontario businesses could produce products at a lesser cost, then this would drive down the cost to the end user…the consumer. By blending the current two taxes into one blended tax rate, the intention is to simplify the process both from a fiduciary point to the businesses, and to the consumer. The complication in this application is that items currently only taxed the existing GST (Goods & Services Tax) of 5% will now be saddled with an additional 8%, which is the current Provincial Retail Sales Tax (PST) rate. As cries for exemptions filled the inbox of Dalton McGuinty, he finally stated that no further exemptions could be made as Ontario is facing a record debt due to the current economical conditions. In other words, the Provincial Government requires the additional tax revenue that the HST is going to generate to help pay down the massive debt.

If all is fair in love and war, then the introduction of HST should be a wash when it comes to revenues generated by the blending of taxes. However, nothing could be further from the truth. The Provincial Government is actively stating that HST is not a ‘tax grab’, but the proof is in the pudding. Consider what the City of Hamilton recently identified in a document submitted to Council on November 24th:

“The proposed 2010 user fees have been developed based on Council’s guideline, exclusive of any potential impact of HST…Staff estimated that the impact of the proposed HST on clients who pay our user fees would be approximately $3.7 million.”

The report goes further to state that a recommendation has been made to the Province that users be exempt from paying the Provincial portion of the HST.

If you didn’t catch it…that’s $3.7 million in additional tax revenue collected for no increase in services. It’s essentially free cash for the Province to gobble up without having to lift a finger. And, this is only from one Municipality. Add in the rest, and Province is sitting on a mighty lofty sum of increased tax revenue.

While the above is certainly enough to cause a few ulcers and angst, one has to look at the bigger picture and see if indeed the blending of the two taxes does indeed make in impact on the employment sector. Afterall, the Province is stating that the introduction of HST will generate jobs…and lots of them…some 600,000 new jobs in the next ten years. Economists go further to state that our annual income will raise by 8.8% over the same time frame, that the cost of doing business in Ontario and British Columbia (also in the midst of introducing HST) will decline by $6.9 billion, and as a result of this, the private-sector will spend a whopping $47 billion on job creation and capital spending. All this will make us more cost-competitive against the 160+ nations who currently use a similar blended tax system. (Information courtesy of a Toronto Star article posted on November 26th). Again, with all things equal, Quebec and the Eastern Provinces have been on the HST program for quite some time, therefore one must assume that since Ontario is not, then those Provinces that are using the HST formula are faring better then Ontario, no?

According to StatsCan(Oct ’09 figures), Quebec’s unemployment rate is 8.5%; Newfoundland and Labrador 17.0%; Prince Edward Island 12.0%; Nova Scotia 9.3%; and, New Brunswick 8.5%. Compared to Ontario’s 9.3% and BC’s 8.3%, it would appear that we’re not that far apart on employment issues within Canada. But what about the rest of the world that has been identified…How are they doing? Doing a quick search to find the 160+ countries purported to be on the HST system, the quick snippets appear to be in the European Nations, and here is how Canada stacks against them in terms of the unemployment rates:

• Canada 8.6% (Oct, ’09)

• Croatia 9.6% (Sept ’09)

• Denmark 6.4% (Sept ’09)

• European Union 9.3% (Oct ’09)

• France 10.0% (Oct ’09)

• United Kingdom 7.8% (Sept ’09)

Again, Canada doesn’t stand out as being ‘job poor’ compared to other countries. Unless the Provincial Government can supply a qualitative list of comparing countries which clearly identifies our ‘disadvantage’ of being without HST from a ‘job creation’ standpoint, it would appear that we are looking at nothing less than a feeble attempt to add ‘smoke and mirrors’ to a simple tax grab formula.